Aug. 4, 2013 (Allthingsforex.com) – In the week ahead, traders will watch closely the monetary policy decisions of the Reserve Bank of Australia and the Bank of Japan, as well as the Bank of England inflation report, while also keeping an eye on a sequence of data that should offer more insights on the sustainability of the recovery in the U.K. and the euro-zone.
In preparation for the new trading week, here is the outlook for the Top 10 spotlight economic events that will move the markets around the globe.
1. EUR- Euro-zone Services PMI, a leading indicator of economic conditions measuring activity in the services sector, Mon., Aug. 5, 4:00 am, ET.
The final reading is expected to be in line with the preliminary estimate which showed activity in the euro-zone services sector inching higher to 49.6 in July from 48.3 in June. With the manufacturing sector finally expanding after a year and a half of contraction, the EUR could stay supported as the services index gets closer to the 50 boom/bust line.
2. GBP- U.K. Services PMI, a leading indicator of economic conditions measuring activity in the services sector, Mon., Aug. 5, 4:30 am, ET.
Another strong report is expected from the U.K. services sector with the index forecast to jump to 57.4 in July from 49.6 in June. The GBP could attract more bids if the report is as good as anticipated which will reduce the odds of more easing by the Bank of England.
3. EUR- Euro-zone Retail Sales, an important gauge of consumer spending measuring sales at retail establishments, Mon., Aug. 5, 5:00 am, ET.
Consumer spending in the euro-area is forecast to drop by 0.6% m/m in July compared with the 1.0% m/m increase in the previous month. A weak retail sales data could weigh on the EUR on expectations that the European Central Bank would be stuck in an easing mode longer than the Federal Reserve and other central banks.
4. USD- U.S. ISM Non-Manufacturing Index, a leading indicator of economic conditions measuring activity in the services sector, Mon., Aug. 5, 10:00 am, ET.
Activity in the U.S. services sector is expected to pick up the pace with the ISM Non-Manufacturing Index forecast to increase to 53.2 in July from 52.2 in June. Despite of the Fed’s assurance that monetary policy will remain accommodative for the “foreseeable future”, further improvement in U.S. economic data could give the USD a boost on expectations that tapering of asset purchases may be still on track for September or October.
5. AUD- Reserve Bank of Australia Interest Rate Announcement, Tues., Aug. 6, 12:30 am, ET.
The inconsistency of the Australian economic reports in recent months and signs of a slowdown in China, Australia’s largest trading partner, have increased the odds of a rate cut by the Reserve Bank of Australia. This is why a 0.25% reduction at this meeting would not be a surprise. The Australian dollar could see pressures rising if the Reserve Bank of Australia cuts the benchmark rate or hints of an impending rate cut in the near future.
6. GBP- U.K. Industrial Production, the main gauge of industrial activity measuring the output of factories, mines and utilities, Tues., Aug. 6, 4:30 am, ET.
Months of consistent improvement in the services and the manufacturing indexes have shown promising signs that the U.K. is on a path to recovery. The report is expected to be in line with this trend as industrial production grows by 0.7% m/m in June after a flat reading in May. The GBP should be able to maintain its bullish stance if the U.K. economic data continues to boost optimism.
7. CHF- Swiss CPI- Consumer Price Index, the main measure of inflation preferred by the Swiss National Bank, Wed., Aug. 7, 3:15 am, ET.
After rising by 0.1% m/m in June, the Swiss inflation gauge is forecast to return back in deflation territory with a drop by 0.3% m/m in July. Should deflation continue to be an issue, the Swiss National Bank will be in no hurry to let go of the franc ceiling which was set at 1.20 per euro in September, 2011.
8. GBP- Bank of England Inflation Report, the central bank’s official analysis and outlook on inflation and the economy, Wed., Aug. 7, 5:30 am, ET.
While the CPI remains above the Bank of England’s 2% target at 2.9% y/y, inflation in the U.K. has subsided from record highs above 5% last year. If policy makers expect this trend to continue and forecast a “nascent recovery” in the months ahead, the report will reduce the probability of more QE by the Bank of England and could boost the GBP as an alternative to currencies whose central banks are committed to monetary policy easing.
9. JPY- Bank of Japan Interest Rate Announcement, Thurs., Aug. 8, around 12:00 am, ET.
With economic conditions beginning to improve, the Bank of Japan wouldn’t need to get more aggressive at this point but will be likely to reaffirm its commitment to open-ended QE until the 2% inflation target is in sight. As the monetary policies of the Fed and the Bank of Japan diverge in the months ahead, the U.S. dollar should be able to resume its bullish trend against the yen.
10. USD- U.S. Jobless Claims, an important gauge of labor market conditions measuring first-time claims for unemployment benefits, Thurs., Aug. 8, 8:30 am, ET.
In the aftermath of last week’s four-year low reading of 326K, the U.S. jobless claims are forecast to stay within range, rising slightly to 335K. Although the non-farm payrolls were weaker than expected, the USD should continue to benefit from improving labor market conditions in the United States.